Is Franchising for Scale or Sustain?
The Franchising community in India has never experienced a crisis like this, the immediate effects are apparent with the shutdown of pre-schools, K12 schools, food outlets, retail shops, salons, all of them heavily franchised owned and operated.
The long term effects of this pandemic led crisis that can’t be completely comprehended but if we judge a book by its cover then we are facing a long road to recovery.
Venus Barak, CEO of Franglobal, said, “I am an optimist, so I believe we will certainly improve after the pandemic crisis is over. Our best ideas arise when going down the dangerous roads, not safe passages.”
Past recessions and economic downturns have clearly shown that people turn to the franchise in times when the economy is strained or could likely become strained. Why? People want more control of their future with a business that comes with proven systems and support. It is globally proven that during a slowdown franchising is the established format to fix the economic stress by giving people opportunities to start a small business without much know-how.
Active Franchising in India is about 25 years old, coinciding with the biggest economic growth registered, so on the face of it franchising has been looked at as a vehicle to scale and that has worked for the majority of players. The demand side for services like pre-school, quality high schools, salons, and F&B stores has been extremely high and various national, international, regional and local brands have filled this gap.
Franchising growth was mostly unaffected in the 2008-9 global slowdown driven by the classic hockey curve demand for the budding middle class. Would 2020 be the same as 2008-9 for the franchising industry? There are no definitive answers.
Here are a few observations:
1. Brands will consolidate heavily and non-performing stores need to be shut down. Cash has become king.
2. Brands who have been lagging behind on empowering and enabling franchising will not survive.
3. The success of the supply and service of local ‘Kirana’ aka grocery stores during the lockdown will drive hyper-local franchising across categories.
4. Franchise Financing will see reforms akin to America.
5. Large corporations will look at converting existing corporate-owned stores to the franchising model.
6. Franchise standards will become ever important.
7. Home-based Franchises will be the next sunshine category.
8. The unreasonable real estate mall costs eating up our industry will evolve to sustain itself and its customers.
9. The neighborhood markets will see a sharp growth with landowners opening and operating brands.
10. The neighborhood market uptick will involve working with local municipalities to upgrade and maintain.
11. Large national and international brands will look at franchising from a sustainable perspective and not as much scale. Café Coffee Day is such an example, local franchise owned and operated models will cushion the main organization from a black swan event.
12. International Brands will make India market a priority as the best option from the cultural and political context.
13. There will be a new breed of companies with multiple partners coming together to operate and own multiple franchises across the sector.
14. In the next two years, we can see something happening with regards to Franchise Regulation.
There will be more observations to come as we face the hardest part and first wave effect of the pandemic.
This article is written by Venus Barak, CEO of Franglobal.
